Sunday, August 31, 2008

Chapter 4 Completing the Accounting Cycle

Pacioli's portrait, a painting by Jacopo de' B...Image via Wikipedia

What is a classified balance sheet?
A classified balance sheet groups the accounts into significant groups. Assets are classified into (1) current assets (2) long-term investments (3) plant property and equipment (4) intangible assets. Long-term liabilities are classified into current and long-term liabilities.

What are the four steps for closing entries?
The four steps for closing the books are (1) close the revenues to the income summary (2) close the expenses to the income summary (3) close the income summary to the capital account, and (4) close the Drawing account to the capital account.

What are current assets?
Current assets are assets that may be converted into cash within a one year period.

What are current liabilities?
Current liabilities are liabilities that must be paid within a one year period.

What type of account is the Income Summary?
The Income Summary is an owner’s equity account that is set up for a very period of time so that we may transfer the net income to the capital account.

What are Intangible Assets?
Intangible assets are assets that have no physical substance; yet, they have value and are carried in the balance sheet.

What do we mean by Liquidity?
Liquidity means having sufficient amount of cash to pay bills.

What are Permanent or Real accounts?
Permanent accounts are accounts that are never closed. They include assets, liabilities, and the capital account.

What is a post-closing trial balance?
It is a trial balance that is prepared after the closing entries have been posted.

How do you find Owner’s Equity?
We find owner’s equity by subtracting liabilities from assets.

What are Temporary or Nominal accounts?
Temporary accounts are accounts that must be closed at the end of an accounting period. They include Revenues, Expenses, and the Drawing account.

What is a Worksheet?
It is a working paper that shows the trial balance amounts, the adjustments, the income statement and the balance sheet. It isn’t a permanent record, since accountants have the option to use it or not.

What are the standard classifications of a classified balance sheet?
Assets are subdivided into: Current Assets, Long Term Investment, Property Plant and Equipment, and Intangible Assets. Liabilities are subdivided into: Current liabilities and Long Term liabilities.

What are long-term investments?
When a company has excess cash—that is, more that it needs for operations—this cash is used to buy stocks, bonds, certificates of deposit, commercial paper, or other investments. Generally, long-term investments may not be cashed in before a year.

What are the two forms in which a Balance Sheet may be presented?
The balance sheet may be presented in two forms: Account form and Report form.

Ch1 Accounting in Action

Ch2 Recording Process

Ch3 Adjusting the Accounts

Ch4 Completing the Accounting Cycle

Ch5 Merchandising Operations

Ch6 Inventories

Ch7 Accounting Information Systems

Ch8 Internal Control and Cash

Ch9 Accounting for Receivables

Ch10 PP&E, Natural Resources, and Intangible Assets

Ch11 Current Liabilities and Payroll

Ch12 Partnerships

Ch13 Corporations

Ch14 Corporations:Dividends, RE

Ch15 Long Term Liabilities

Ch16 Investment

Ch17 Statement of Cash Flows

Ch18 Financial Statement Analysis

Plato and Accounting

Price/Earnings Ratio

Plant Assets

Luca Pacioli and DaVinci

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